Banks shift assets to cut pension deficits

Some of Britain's biggest banks have begun quietly ridding themselves of billions of pounds of assets they have found difficult to sell following the financial crisis, moving them off their balance sheets and into staff pension funds.

The moves -- designed with the dual purpose of clearing unwanted assets from the banks' own books while at the same time closing pension fund deficits -- have been made as exceptional top-up payments into the pension schemes over recent months.

HSBC made a £1.76bn exceptional payment into its pension scheme, comprising a portfolio of assets ranging from subordinated debt to asset-backed securities, last December.

Lloyds also made a £1bn commitment to its pension fund as part of a £5bn transfer of assets into an intermediary funding vehicle. Lloyds did not respond to requests for information about the arrangement, but pensions experts said the measures were comparable with the HSBC plan.

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Some pension fund trustees have expressed concern that they are receiving questionable assets in place of cash. "[Trustees] might say: ‘If I can have a crisp new white shirt why would I want one you wore yesterday?'" said Dawid Konotey-Ahulu, co-chief executive of consultancy Redington.

But bank executives point out that transfers into bank pension funds have occurred at impaired book values. In addition, some assets have been given another valuation "haircut" of as much as 20 per cent, according to pensions experts -- sufficient to placate pension fund trustees.